Wednesday, October 24, 2012

Why "Premium" Channels Might Be Early to Go "Consumer Direct"

Up to this point, U.S. video programmers have largely resisted moves to shift delivery channels for their content away from video service providers for one simple reason. Doing so serves their financial interests.

So what observers will continue to watch for are any developments that weaken the revenue stream generated by the video service distributors.

Up to this point, it looks as though the  "premium" channels, not supported by advertising and requiring an incremental charge, are likely to be early bellwethers. Netflix certainly believes that will happen.

The reason is that such channels are most similar in fundamental ways to the value provided bu product substitutes such as Netflix, featuring heavy amounts of movie and other prerecorded material, rather than "live" events and content such as sports, news and weather. 

"Cord frayers" are those customers  who have downgraded their cable TV packages instead of cutting the cord completely. And it makes sense that adoption of Internet streamed video might have a correlation with such behavior, if in fact online-delivered video is a functional product substitute. 

According to an October 2012  study by company Market Strategies, 25 percent of  U.S. Internet users have dropped premium channel service in the past two years. 

The Market Strategies survey found that 46 percent of respondents cancelled one or more premium channels and, to save money, 44 percent downgraded to a less expensive TV package. 


As you might guess, "cord frayer customers" watch slightly less live TV than other viewers. That makes sense if Netflix and other services are largely substitutes for pre-recorded content, rather than live content. 

When asked if they watched less regularly scheduled TV or pay per view because of streaming, 33 percent of cord frayers said “yes,” compared to only 20 percent of other video customers. 

All of that suggests that the premium channels ultimately will be among the first major programming suppliers to make a major move to embrace "direct to consumer" distribution using streaming. 

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